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Suppose the U.S. dollar depreciates by 6% against the U.K. pound. The following table shows the elasticities of demand in the United States and the
Suppose the U.S. dollar depreciates by 6% against the U.K. pound. The following table shows the elasticities of demand in the United States and the United Kingdom. (Note: Throughout this analysis, assume that only the United States and the United Kingdom are relevant countries.) Given that the sum of these elasticities of demand is 0, the elasticity approach predicts that the depreciation of the U.5. dolar will the U.S. trade position. Use the elasticity approach for the remainder of this m or refute its prediction about the U.S. trade position as a resuit of the dollar depreciation. Assume the prices of imports remain constant in terms of foreign currencies. This means the 6% depreciation of the dollar results in a 6% increase in the price of imported goods to the United States, but the dollar price of exports remains constant. Given that the sum of these elasticities of demand is will the U.S. trade position. 1.0, the elasticity approach prec spproach for the remainder of this problem to confirm or refute its prediction about thi Ass of imports remain constant in terms of foreign currencies. This means the 6% deprec the price of imported goods to the United States, but the dollar price of exports remains constant. Use the elasticities of demand from the previous table to compute the change in the quantity of imports demanded by U.S. consumers as a result of the price increase. Then compute the change in the quantity of U.S. exports demanded by the United Kingdom as a result of the dollar depreciation. Enter these values in the third column of the following table. (Hint: Use the minus sign to indicate a negative value, if necessary.) You can compute the net effect of the 6% depreciation of the dollar for U.S. imports and exports by adding the percentage change in price and quantity. Compute the net effect on U.S. imports, exports, and net exports. Enter these values into the final column of the previous tabie
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